US Treasury Report Warns AI Bubble Could Trigger Economic Shockwaves
The U.S. Department of the Treasury has produced a draft report warning of extensive risks to the economy if the artificial intelligence market repeats what happened when the dotcom bubble burst 25 years ago which obtained a copy of the document
Career Treasury analysts found that AI firms are more deeply entrenched in the broader U.S. economy than their dotcom predecessors, NOTUS reported. A downturn would send shockwaves across stock markets, private credit markets, companies financing data center buildouts, cloud providers, chip manufacturers and utilities, the analysts wrote
The report stopped short of predicting an immediate crash comparable to the early-2000s bust. Analysts projected that companies would cut investment, investors would lose confidence and economic growth would slow if the industry faltered. The AI sector is particularly vulnerable to funding for data centers and other infrastructure projects drying up and sustained growth expectations going unmet, the analysts found, saying those dynamics were reminiscent of the dotcom crash
The industry is increasingly concentrated within a small number of firms, heavily reliant on private-market financing and significantly invested in data center infrastructure, according to NOTUS. Supply chain issues, geopolitical tensions, electricity bottlenecks and utilities shortfalls could all block AI’s momentum, the analysts found. Fewer retail investors are backing AI than did dotcom ventures, meaning a sustained AI downturn would fall harder on the institutional investors that underpin economic stability, the report indicated.
The analysts acknowledged key differences between the current AI boom and the dotcom era. Many leading AI companies are more mature, more profitable and carry stronger balance sheets than the speculative ventures that defined the late 1990s, NOTUS reported. Still, the report concluded that investors are taking risks significant enough that much of the financial system now rests on AI meeting its stated expectations for productivity gains and profitability, Seeking Alpha noted
The document was prepared for Treasury Secretary Scott Bessent, Federal Reserve Board Chair Kevin Warsh and other federal financial regulators It is awaiting final approval before its eventual release to the general public
A Treasury spokesperson dismissed the report’s findings as unvetted and not representative of the department’s policies or views, NOTUS noted
Concerns about AI overvaluation have been raised by the Bank of England, the International Monetary Fund and a number of Wall Street figures A Federal Reserve survey published in May found that financial market participants increasingly flag AI-linked equity valuations and debt-funded data center spending as destabilizing risks to the broader financial system, PYMNTS reported
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